The PROPERTY DOCTORS, Sydney Australia Novak Properties

EP. 1349 WHAT ARE INTEREST RATES DOING IN 2025?

• Mark Novak, Billy Drury, Zac Constantinou • Season 28 • Episode 1349

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Unlock the secrets of the property market as we welcome Zac from Shore Financial to our latest episode, promising valuable insights into the convoluted world of interest rates. Despite an unpredictable economic climate, purchasing activity is holding strong, and Zac provides fascinating forecasts on future interest rate movements. We unravel the mystery behind the different measures of inflation and how they shape interest rate decisions. Zac urges listeners to focus on their property plans and not get bogged down by the constant chatter of rate fluctuations.

The conversation heats up as we tackle the "mortgage cliff," exploring its gradual effect on homeowners as they shift from fixed to variable rates. While the financial crisis many feared didn't materialize abruptly, homeowners are still adapting, and we've got strategies to help manage this transition. From debt consolidation to enhance borrowing capacity, to selecting the right mortgage rate options, we cover it all. As we head into the holiday season, Zac reassures buyers that his expertise and support are just a message away, ensuring you have a reliable guide in the bustling property market. Tune in for essential tips and the reassurance you need to navigate these challenging waters.

Speaker 1:

money money, money, money. Guys, we've got the money, man zach from shore financial on this morning. Let's talk about rates.

Speaker 3:

I'm the ringleader, so let's go. This is like a visit from Father Christmas. At this time of year, he will make or break Christmas dreams when it comes to property.

Speaker 1:

Wow, zach, you've got a new look. You look like Rip from Yellowstone.

Speaker 2:

Very good, I should have brought my hat.

Speaker 1:

You look tough man.

Speaker 2:

It's pretty consistent.

Speaker 1:

And Legend. How's it been out there in the money world? So you're out there talking to buyers, you're there talking to sellers. You do a lot of volume, so you're highly exposed to everyone in the market and you're with the wonderful brokerage called Shaw Financial, so you've got some good goss for us today.

Speaker 2:

Yeah, indeed, what's been happening? People have still been buying. Definitely there's still purchases happening to a lot of my work and still a lot of people, you know right conscious, but more people conscious to buy now rather than wait for the rate drop. So I think people are being a little bit more resourceful now, with you know they're spending their money and how they're getting into the property market because, yeah, I certainly haven't slowed down in the amount of purchase applications that have been approved and the amount of people we've been settling.

Speaker 3:

So certainly a lot of activity out there, I've got to ask the obvious question what the hell is happening with interest rates in 2025. I thought we were going to see a rate cut in December. Maybe, All in here. Yeah, yeah, but you've got the next best thing to a crystal ball.

Speaker 2:

There is. There are a couple of things that we watch closely. Obviously, everyone sees what the major banks are saying. I think we've got ANZ and CBA saying that there'll be a rate cut in February, which will be the first. Rba meeting, I think around the 19th. Sorry, the 7th of February. I think is the first RBA meeting next year.

Speaker 2:

sorry, the 7th of February, I think is the first RBA meeting next year, but there's also one coming up in December which I think maybe go back 12 months ago a lot of people expected some interest rate cuts by the end of this year, but I think from the data that we're following and seeing, maybe off the cards this year, it may not be until the middle of next year to reasonably expect an interest rate cut Like May.

Speaker 3:

Yeah.

Speaker 2:

So as I said, ANZCBA say February there's NAB and Westpac saying that it's going to be around May and look, it is crystal ball sort of stuff I suppose you know the major banks have a lot of customers they'd like to keep happy and they want new business knocking on the door. So you know they're going to tend to say things maybe a little bit more aggressively than what might happen in actual fact.

Speaker 2:

There's the RBA rate tracker which, from the ASX, gets adjusted almost daily in terms of what the markets and the traders are interpreting, based on a whole range of economic factors that they trade to.

Speaker 2:

And that shows that May to June, maybe even July, is when the first rate cut is expected. Now it's all fluid on economic data, domestic and international. What the RBA said recently is that they need to see at least two quarters of sustained inflation in that band. So the target that the RBA wants. We're actually already there with one of the measures of inflation, but they need to see a couple of quarters. So we won't actually see the next quarter of data until February, being the December quarter and I guess what we saw from a monthly perspective being October. That's just gone, so we're obviously in December now, but it takes a month for the data to come out, for it to be reported on.

Speaker 3:

So, to make it simple for people. We've done one out of two, one out of two Sort of quarters in that good band, and now we've got to do another.

Speaker 2:

Well, the interesting thing was about October. So, in short, yes and just, but they want it to be between two to three, so two and a half. We got to, I think, 2.6 last quarter, but now we've seen it drop to 2.1. But that's the price driven inflation which is including, say, things like the energy subsidies, you know, the things that have reduced naturally in our domestic economy, and then you've got the underlying inflation measure, which has gone the opposite direction. So we've gone to 2.1, with all the price driven volatile goods and then keeping them out, um and more of a broader economic model. The underlying inflation has gone, gone back to 35. So I guess there's a few things externally that are impacting everyone's interpretation and obviously our economy. So we'll see what happens in the December quarter, but I think this year is off the cards for a great cut and I'd say June or even the July meeting is after. The May meeting would be, I guess, in line with what the markets are saying, which is the unbiased opinion.

Speaker 1:

Wow hey, zach, if I was to say to you who gives this about interest rates? Uh, it's a. It's at a 20 or 30 year average at the moment. Get on with life. I just feel like people are watching rates so hard and so intense. They'll feel like they're watching everything. They're waiting for an election, they're waiting for this, they're waiting for that. It's like, just get on with what you do do. Why are people so into? Where are the rates? Where are the rates? Where are the rates? It's? You know, it seems like it's never been like that, more so than now yeah, I couldn't agree more.

Speaker 2:

I think and you've said it yourself, Mark if it bleeds, it reads, and that's what the media can play on is what's still very topical, but I think I get.

Speaker 2:

The question a lot is when should I buy my property? And obviously I can't give the financial or property advice, but I can tell them how much they can borrow and the general response is well, if you find something that you like, that you can afford. What's stopping you? Because another famous quote from you, mark, is it's not timing the market, it's timing the market. I think you told me once upon a time timing.

Speaker 1:

It's time in. That's right. And another one is I get asked about the property market. I'm like, look, it's been really good the last hundred years and I think will be equally as good the next hundred years. It's you know. I mean, it's like if you're gonna watch that market every day or every week or every month, you're gonna give yourself a heart attack. The bottom line is it's doubling every 10 years. It's.

Speaker 2:

It's a long-term market and all this stuff's long term so we're on average and you'd say this is just a mere blip on the long-term scale of things well you know you are.

Speaker 1:

House values have doubled I've done more than double over the last 10 years in our in our housing areas on the northern beaches. They've done about 130 percent. So double plus 30 percent and units have under performed. They've done about 70 percent in all of our unit suburbs on the northern beaches. So they've. There's a big gap um, which you could understand. When it was a two percent interest rate, everyone got into a house.

Speaker 2:

Hence here we are with the gap between houses and units and what are people saying at open homes like are you still seeing and hearing that people are, yeah, watching rates too often and you know too closely to maybe? Sway them from making the decision they need to make at least a good comment in here.

Speaker 1:

What's the least you're?

Speaker 2:

going to say for yourself, that's a good comment in here.

Speaker 3:

What's Lisa got to say for herself? Lisa's talking about the waiters. There are people that come through and say I'm holding off, I think prices are going to change next year, but a lot of people are telling us that their borrowing capacity has changed hugely.

Speaker 2:

Since two years ago. Absolutely, if you could borrow a million dollars two years ago, you can now borrow around $570,000. Wow, so it's been a big hit. The interest rate rises. Can you say that again? So let's say you could borrow $1 million on your income two years ago. Yes, you can now borrow around $500, 000.

Speaker 3:

That's massive, that's huge. So that's looking at about you know 20 130 000 salary, up to sort of 150 000 in income, to be used servicing it's gone from about eight and a half to five times your income wow, are you finding clients that took the million dollar mortgage two years ago was struggling now to repay that?

Speaker 2:

not particularly, and that was a lot of what was, you know, spread across the headlines is that you know, the infamous mortgage cliff and the expectation of people to struggle, and I mean it happened, but it wasn't a cliff, it was almost like a bit of a bit of a roll off, like there wasn't a distinctive line where everyone freaked out.

Speaker 2:

Obviously they were staged in terms of how much you fixed on your million dollar mortgage If it was one, two, three, up to five years. Yeah, so we still got people coming off um five year fixed at 1.86, like just there's probably the last little tail end january and they're um, you know, they're going on to. So some of them have done really well they've've smashed their repayments and they've put extra in their savings so that now they've still got that bit of buffer to rely on or they pay it straight in before we refinance them and therefore they've got a lower loan to refinance they're going on to. At the best variable rate would be 5.94. Wow, by comparison, you've got a one-year fixed at 5.79, 15 basis points lower than the variable, but you don't get an offset account. And if rates do come down, say 25 basis points in the next year, well, you're going to be paying a little bit more and you're going to be locked in.

Speaker 3:

And are people nervous for the new year if they're in that position, or are they taking it in their stride?

Speaker 2:

I think there's quite a few people that you know have that first discussion, that you know might have bought their first home, you know, in that historical period of ridiculously low interest rates, yeah, and so they are nervous. But once you know, we guide them through the serviceability conditions and show them that it's possible for them to afford their repayments.

Speaker 2:

It is just them, then, about looking at what they've got on in their life and if they do need to reduce discretionary spending, if we do need to consolidate any credit cards or car loans to help streamline their repayments, um, which you know, again, we've been doing a lot of because people did take out credit cards, personal loans, car loans, um, again, because they weren't going overseas, so they had a bit more fun locally and got a bit more done here, yeah, um, but now it's, you know, come back to bite them. So there's usually a bit of wiggle room with that consolidation factor and say, with credit cards or personal loans and car loans that changes your borrowing capacity or reduces it.

Speaker 2:

rather, on a five times multiplier four and a half to five times multiplier, by example, if you've got a $10,000 personal loan or credit card, then you can take $45,000 to $50,000 off your borrowing capacity.

Speaker 2:

So that could be the difference in refinancing could be the difference in purchasing. So getting rid of that debt or consolidating it against equity in the house, yes, it drags out the period for repayment. There's probably more interest, but at the moment it's about cash flow for people. Yeah, kind of more. So instead of having three or four separate repayments, we put everything in one basket and reduce it. You know, say from you know two thousand dollars a week down to eight hundred dollars a week, because we've really brought it in and given them some breaking room 13 minutes flies by.

Speaker 1:

Hey Jack, how do people find you if they want a loan?

Speaker 2:

You can call me or you can ask Billy for my details. I'm sure he'll pass them on. Otherwise, shaw financial is the brokerage I'm at and I am a credit advisor there, so you can find me on their website, but otherwise I guess we'll let details yeah way in the comments or show notes.

Speaker 3:

Absolutely what, um, what, what, what are turnaround times on, you know, loans turnaround times? Yeah, actually I just had a thought.

Speaker 2:

You can actually see me on the back of Loans, more free bills, turnaround times. Yeah, actually, I just had a thought. You can actually see me on the back of the list. You can so come into Novak, because they're free and they've got all the properties you'd ever need. And on the back page, you've got you know some… All the cafes.

Speaker 1:

Go into any mortgage brokers in DY. You'll see the list on their, on their, on their coffee tables, with zach on the back of it.

Speaker 2:

Zach on the back all the lawyers or turnaround time for pre-approval uh, look, some of them are as fast as you know, flicking through your magazine, wow. But uh, generally it's, you know, two to four business days. You know, you've got lenders like macquarie and suncorp who pick it up in an hour and we'll give you an assessment, you know almost the same day.

Speaker 3:

Sometimes a conditional approval the same day, so yeah will that slow down over christmas as they've gone to skeleton staff?

Speaker 2:

Yeah, there are cut-offs and I guess the big thing is which solicitors are on through the Christmas break if you're purchasing and a lot of the bank's solicitors do take a bit of time off. There are skeleton crews on, but I'd say I think from the 17th or the 23rd of December until maybe the 6th of January it will slow down.

Speaker 3:

Good to know for a buyer, really good to know. But if they need, help.

Speaker 2:

let me know I'll be on. I've already had my holiday, so I'll be here for you mate.

Speaker 1:

Nice Welcome back, zach. Thank you again, and if anyone needs this lovely man or his advice, you know where to find him. Have a great day you too take care, take it easy.